My daughter's millionaire dreams aren't far from reality

Our oldest daughter Jessica said she wants to be a millionaire someday. At age 19, she’s off to a good start, and that substantially increases the odds of achieving her goal.

A few weeks ago, Jess took about $1,600 she’d saved from after-school jobs and opened a Roth IRA. With a Roth IRA, Jess can save and invest for her future, such as retirement. The money she puts in will grow without being taxed, just like a traditional IRA or a 401(k) plan. However, unlike those types of retirement savings vehicles, when she starts taking money out of the Roth IRA down the road, her earnings likely will be tax-free.

$100 a month to start
Naturally Jess isn’t thinking as much right now about retiring from her career as starting it. She’s in her second year at Northeastern University in Boston, majoring in journalism and cinema studies. Part of her education includes a semester working full-time at a local newspaper, so she’s been getting a weekly paycheck since January. Her plan is to put at least $100 a month into her Roth account for the foreseeable future, and beyond.

No school debt and lots of time
Jessica’s opportunity to build substantial wealth is enormous thanks to two huge advantages she has. First, she attends Northeastern on a full scholarship. She will graduate in a few years with no school debt whatsoever, which should help to keep her plans to save on track even while pursuing a career field where starting salaries often almost feel like minimum wage.

The second advantage is time. With a savings horizon of 40-plus years, Jess’ sacrifices of trendy clothes, late-night pizzas, and morning ice coffees in these college years could mean financial freedom and security in her retirement years. I’d bet some Baby Boomers today wish they had made the same decisions when they were her age.

It sure adds up
Not that Jess needs any motivation, but I e-mailed her these numbers to show just how wise she really is to start a meaningful saving plan at age 19:

(For simplicity, I based my calculations on a 10% average annual return on the IRA investments.)

• By saving just $100 a month in a Roth IRA, Jess stands an excellent chance of being a millionaire by the time she is 63 years old.


• If she increased her savings to $168 a month, she has a great likelihood of being a millionaire by her 60th birthday.


• If she starts saving the maximum amount allowed for an IRA ($4,000/year in 2007, or $333/month), she could even have her first million by the time she turns 52 (not even “retirement” age).

Granted, $1 million in 2047 won’t get Jessica a retirement that is 100% financially secure. But unlike many kids her age, she already understands the value of saving and sacrifice to reach a long-term financial goal, and that will serve her well.

I couldn’t be prouder.

Woman's good financial sense leads to windfall

Making wise personal finance decisions can be hard because they often require short-term sacrifices for long-term benefits. But they do pay off--and as one California woman found--even quite handsomely.

Hoping to help pay for her oldest daughter's tuition to the University of California, Berkeley, the woman decided to auction off a painting that once belonged to her grandmother, according to an Associated Press report. Instead of the few thousand dollars the woman was expecting the painting to fetch, she was stunned at the picture's final bid: a whopping $620,900.

A possibly difficult choice

Not having the needed funds for her child to attend a terrific school like Berkeley, Mom could have easily required the daughter to load up on student loans. As colleges go, Berkeley is a nice value; in-state undergraduate tuition for 2006-2007 averages only $7,800. Commuting to school from home, the daughter could conceivably graduate in four years with a "reasonable" $70,000 in debt.

But Mom faced head-on what may have been an emotionally difficult choice: Part with a painting that hung on the wall for years in her grandmother's home in Italy? Or strap her child (or the family overall) with a debt-load that might take years and years to pay off?

By choosing to sell the painting, the family can now afford to provide all of their children with higher educations without putting themselves behind the financial eight-ball. Maybe they can even have a more secure retirement.

The wisdom of avoiding debt

To be sure, the woman's experience is rare. The sold painting was unsigned, rumored to be the lost work of 17th-century Italian art master Pier Francesco Mola. Who knows if it is worth the price that the unnamed art dealer paid for it.

I won't be searching my parents' basement anytime soon for family heirlooms that could help pay our kids' college costs. But, like the mother in this story, I will do whatever I can to avoid overloading our family and our children with substantial student loan debt. That approach may not get us a cool $600,000, but I know that it, too, will have its rewards.